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Traditional finance jumping into crypto is bringing confidence

New research into the attitudes of high-net-worth investors towards digital assets from Matrixport, and produced by FT Longitude, the specialist research and content marketing division of the Financial Times Group, finds that investors are more likely to take the plunge into crypto if traditional finance players were to offer relevant services (53 per cent), and if they feel reassured by the entry of long-term investors (54 per cent). These sentiments are particularly pronounced among those yet to invest.

More accessible technology platforms (for example, asset management platforms) are also critical for investors to take the leap (59 per cent). This highlights technology’s important role in facilitating ease-of-use and adoption — similar to how banking apps propelled the maturation of digital banking services in the last decade. Accessibility will naturally come with the evolution of self-service platforms, but a question remains around how the digital asset class will attract more investors to see its value proposition.

Top five trends increasing investor appetite for digital assetsTop five trends increasing investor appetite for digital assets

Top five trends increasing investor appetite for digital assets

Zoom-in: Traditional finance makes its move

The findings around the entry of long-term investors and traditional financial players are important because they demonstrate the potential for established institutions to impact the perception of digital assets and the industry’s trajectory. Crypto summer or winter, traditional finance players are funnelling capital into digital assets via familiar investment vehicles and hedge funds – significantly contributing to the market cap projected to range between $2 and $3 trillion in 2022. Despite the current crypto winter, institutional players are still deeply engaged with the market. 

At the same time, traditional finance’s growing receptiveness of crypto means it has become more interconnected with regulated markets – adding incentive for regulators to take steps to restrict the sector’s rapid growth, with the aim of preserving the integrity of the financial system and protecting retail investors.

The desire for traditional finance stewards extends to how investors would like to access the crypto market. Unlike retail investors, HNWIs are suspicious of transacting through crypto exchanges. “If I'm using Barclays Capital Wealth Division [to manage my portfolio] and they don't support crypto, as a high-net-worth individual I won't go to Binance because I don't trust it,” says Pavel Matveev, CEO at Wirex. Inexperienced investors say they would rather transact via a bank or traditional asset wealth manager than any other channel. 

Accelerating the adoption of digital assets

Accelerating the adoption of digital assets

With the likes of Bank of America and Goldman Sachs offering crypto exposure to investors now, the industry is expected to see a further uptick in adoption. “In the past 12 to 24 months, we have seen a marked increase in interest from institutions,” says a director at a European digital asset investment firm. He attributes this partly to excitement about what the new technology enables, including decentralised applications and finance.

But while eager to test out crypto’s potential, traditional finance players are still hamstrung by hesitation over the associated risks. Hence, this group is looking to regulators for guidance – hoping that new rules will have a stabilising effect on the market, as well as providing greater investor protections. 

The current lack of regulation explains crypto’s high volatility and the unscrupulous behaviour of some actors in the industry – which is typical for unregulated financial markets. Before the US National Banking Act of 1863, banks issued their own banknotes, and critics of stablecoins have compared them to these lawless ‘wildcat’ banks.

The question is whether regulation will become a roadblock to uptake, or pave the way to mass adoption?

Smoothing the path for crypto’s future?

In Europe, major institutions like the European Investment Fund have endorsed venture capital funds investing in Web3 and decentralised finance (DeFi), while multibillion-dollar funds from the likes of venture capital firm Andreessen Horowitz launched in the US, even as the crypto markets were spiralling. Unlike previous stages of crypto’s evolution, big (fiat) money now underwrites a lot of the new projects populating the ecosystem.

The point, however, is that we may be at a tipping point. Some say that the introduction of regulation will be an enabler for critical mass since the lack of regulation breeds risk and uncertainty. 

For institutional investors, who may have dabbled in crypto, decisive action from the regulator is what they need to go further. “They look to the regulator for guidance on what the professional opinion is,” says Eugene Lim, head of private wealth at Matrixport. Too much money is already involved for traditional financial players to walk away, but regulation is now needed to unlock the next tranche of institutional capital. 

To understand more about digital assets, explore the study